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"There is zero tolerance," Merkel said with regard to far-right extremism.
The chancellor said during a speech in Nuremberg that she, like millions of others, was "shocked and despondent" after the attack.
"We only barely escaped a terrible attack on the people in the synagogue. There could have been many more victims," she added.
German Justice Minister Christine Lambrecht confirmed that the incident is being treated as a "far-right terror attack" by a lone individual. Far-right extremism was becoming one of the biggest threats to German security, she said.
German federal prosecutor Peter Frank added: "What we experienced yesterday was terrorism."
"The accused wanted to force his way into the place of worship and kill as many people of the Jewish faith as possible," prosecutors said. There were 51 people in the building at the time.
Frank said the 27-year-old German suspect, facing two murder charges and nine charges of attempted murder, had been carrying four weapons with him and had 4 kilograms of explosives in his car.
The accused, who has been named by the authorities only as Stephan B under strict German privacy laws, wanted to imitate similar acts and then be imitated himself.
"According to what we know, he also wanted to incite others to commit such acts," Frank said, adding that his activities on the internet and possibly the dark web were being monitored.
A dpa photographer said the suspect had been taken by helicopter to the federal prosecutor's headquarters in Karlsruhe.
He was later remanded in custody, a spokesman for the federal prosecutor's office told dpa.
The prosecutor's office said evidence had been secured after a raid on his home, which media reports said he shared with his mother.
A spokesman for the prosecutor said the suspect had not previously come to the attention of the authorities as a right-wing extremist. Investigators are probing whether he had accomplices.
Security sources said the suspect was treated in two hospitals for gunshot wounds and underwent an operation in Halle. He had been shot in the neck but there was no word on whether the injuries were inflicted by police or himself.
He was detained after being involved in a road accident as he fled in a stolen vehicle.
The attacker attempted to storm the synagogue on Yom Kippur, the Jewish Day of Atonement regarded as the holiest day of the year.
After the attack failed, he killed a woman in front of the synagogue and a man in a kebab shop. He injured two others, all while filming his deeds with a helmet camera and broadcasting them on the internet.
The videos, verified by authorities, are reported to have been viewed more than 2,000 times before being taken down.
The father of the alleged suspect told the Bild newspaper that his son was a loner who often sat in front of the computer.
"He was neither at peace with himself nor with the world; he always blamed everyone else," he said.
At least 900 people attended a prayer ceremony at a church in Halle to show solidarity with the relatives, and with the Jewish community.
Staff working at the German parliament, or Bundestag, gathered outside the Holocaust memorial in Berlin to show their opposition to anti-Semitism and extremism in the wake of the Halle attack.
German Interior Minister Horst Seehofer, from Merkel's right-wing Bavarian coalition partner the CSU, laid flowers at the synagogue.
Seehofer called the events in Halle "a disgrace for our entire country." He vowed that "Jews can live in our country without threat and without fear."
The interior minister also said synagogues would be put under police protection effective immediately.
German President Frank-Walter Steinmeier also visited the scene. "This is a day of shame and disgrace," Steinmeier asserted.
Steinmeier had spoken on the phone with Josef Schuster, the president of the Central Council of Jews in Germany.
Schuster told Deutschlandfunk radio that there was a "new quality of right-wing extremism in Germany."
Mainstream politicians said an increase in far-right extremist violence in the country had followed the rise in popularity of the far-right Alternative for Germany (AfD) party.
But AfD leader Joerg Meuthen said in a statement: "Jewish life in Germany is a key part of our identity and will always remain so. The Alternative for Germany will defend Jewish life against its enemies with teeth and claws."
German Foreign Minister Heiko Maas reacted with bewilderment to the attack, given Germany's Nazi past.
"Why is this happening in our country? Our country! Two innocent people were brutally murdered - how horrible and senseless," he wrote on Twitter.
The Yad Vashem Holocaust Memorial in Israel called on the leadership of the international community to declare that in the "post-Holocaust global society, there is no room for anti-Semitism, racism or xenophobia."
The chancellor said during a speech in Nuremberg that she, like millions of others, was "shocked and despondent" after the attack.
"We only barely escaped a terrible attack on the people in the synagogue. There could have been many more victims," she added.
German Justice Minister Christine Lambrecht confirmed that the incident is being treated as a "far-right terror attack" by a lone individual. Far-right extremism was becoming one of the biggest threats to German security, she said.
German federal prosecutor Peter Frank added: "What we experienced yesterday was terrorism."
"The accused wanted to force his way into the place of worship and kill as many people of the Jewish faith as possible," prosecutors said. There were 51 people in the building at the time.
Frank said the 27-year-old German suspect, facing two murder charges and nine charges of attempted murder, had been carrying four weapons with him and had 4 kilograms of explosives in his car.
The accused, who has been named by the authorities only as Stephan B under strict German privacy laws, wanted to imitate similar acts and then be imitated himself.
"According to what we know, he also wanted to incite others to commit such acts," Frank said, adding that his activities on the internet and possibly the dark web were being monitored.
A dpa photographer said the suspect had been taken by helicopter to the federal prosecutor's headquarters in Karlsruhe.
He was later remanded in custody, a spokesman for the federal prosecutor's office told dpa.
The prosecutor's office said evidence had been secured after a raid on his home, which media reports said he shared with his mother.
A spokesman for the prosecutor said the suspect had not previously come to the attention of the authorities as a right-wing extremist. Investigators are probing whether he had accomplices.
Security sources said the suspect was treated in two hospitals for gunshot wounds and underwent an operation in Halle. He had been shot in the neck but there was no word on whether the injuries were inflicted by police or himself.
He was detained after being involved in a road accident as he fled in a stolen vehicle.
The attacker attempted to storm the synagogue on Yom Kippur, the Jewish Day of Atonement regarded as the holiest day of the year.
After the attack failed, he killed a woman in front of the synagogue and a man in a kebab shop. He injured two others, all while filming his deeds with a helmet camera and broadcasting them on the internet.
The videos, verified by authorities, are reported to have been viewed more than 2,000 times before being taken down.
The father of the alleged suspect told the Bild newspaper that his son was a loner who often sat in front of the computer.
"He was neither at peace with himself nor with the world; he always blamed everyone else," he said.
At least 900 people attended a prayer ceremony at a church in Halle to show solidarity with the relatives, and with the Jewish community.
Staff working at the German parliament, or Bundestag, gathered outside the Holocaust memorial in Berlin to show their opposition to anti-Semitism and extremism in the wake of the Halle attack.
German Interior Minister Horst Seehofer, from Merkel's right-wing Bavarian coalition partner the CSU, laid flowers at the synagogue.
Seehofer called the events in Halle "a disgrace for our entire country." He vowed that "Jews can live in our country without threat and without fear."
The interior minister also said synagogues would be put under police protection effective immediately.
German President Frank-Walter Steinmeier also visited the scene. "This is a day of shame and disgrace," Steinmeier asserted.
Steinmeier had spoken on the phone with Josef Schuster, the president of the Central Council of Jews in Germany.
Schuster told Deutschlandfunk radio that there was a "new quality of right-wing extremism in Germany."
Mainstream politicians said an increase in far-right extremist violence in the country had followed the rise in popularity of the far-right Alternative for Germany (AfD) party.
But AfD leader Joerg Meuthen said in a statement: "Jewish life in Germany is a key part of our identity and will always remain so. The Alternative for Germany will defend Jewish life against its enemies with teeth and claws."
German Foreign Minister Heiko Maas reacted with bewilderment to the attack, given Germany's Nazi past.
"Why is this happening in our country? Our country! Two innocent people were brutally murdered - how horrible and senseless," he wrote on Twitter.
The Yad Vashem Holocaust Memorial in Israel called on the leadership of the international community to declare that in the "post-Holocaust global society, there is no room for anti-Semitism, racism or xenophobia."
